THE LEGAL FRAMEWORK OF TRADE BETWEEN PLANNED AND MARKET ECONOMIES: THE SOVIET-AMERICAN EXAMPLE* HAROiio J. BERMANf INTRODUCTION State trading differs in kind, and not only in degree, from other forms of govern- mental control of international trade. By tariffs, quotas, prohibitions, exchange restrictions, subsidies, credits, and the like, a government may limit or encourage the conduct of trade by private businessmen; nevertheless, despite such controls, the dis- tinction between the world of commerce, built on market principles, and the world of politics, built on other principles, remains a real one. When state organizations themselves conduct trade, however, the distinction becomes blurred and in some cases loses its reality entirely. This fact becomes apparent when one considers the most extreme form of state- trading system, that of integrally planned economies of the Soviet type, all of whose foreign trade (including not only export and import, but shipping, banking, in- surance, and the like) is conducted by state organizations. Indeed, the phrase "state trading," which implies the co-existence of private trading, does not fully express the union of economics and politics in Soviet foreign trade, or, for that matter, in Soviet domestic trade. The Soviet type of foreign trade system thus reveals the inadequacy of conventional concepts and traditional institutions which were devised to deal with the situation in which the state organizations of a country appear along- side its private firms and hence can be assimilated, in our thinking, to such firms. If the foreign trade systems of planned economies compel us to think about state- trading organizations in different terms, where are such terms to be found? They can only be discovered through analysis of the actual workings of the foreign trade * The present article is adapted from the writer's General Report to the UNESCO Conference on Legal .Aspects of Trade Between Planned and Free Economies, Rome, February 1958. Assistance in research by Ralph Nader, LL.B. 1958, Harvard University, and A. Joshua Sherman, LL.B. 1957, Harvard University, under grants of the Committee on Research and Development of Harvard University, is grate- fully acknowledged. A condensed version of this article was presented at the annual meeting of the American Society of International Law, Washington, D.C., May 1, 1959, and will be printed in a forth- coming volume of that Society's PROCaEDNmos. t B.A. 1938, Dartmouth College; M.A. 1942, LL.B. 1947, Yale University. Professor of Law, Harvard University; Research Associate and Member, Executive Committee of the Russian Research Center. Harvard University. General Rapporteur, UNESCO Conference on Legal Aspects of Trade Between Planned and Free Economies, Rome, February 1958; Recipient of Rockefeller Foundation grant, x956- 57, for study in Europe of legal and institutional framework of trade between communist and non- communist countries. Author, JusTicE IN RussiA: AN INTERPRETATION OF SOVIET LAW (i950), [With Boris A. Konstantinovsky] SoVIET LAW IN AcTION: THE RECOLLEcTED CASES OF A SOVIET LAWYER (5953), [with Miroslav Kerner] SovIET MILITARY LAW AND ADMINISTRATION (955), and other books. Contributor to periodicals. SOVIET-AmEmCAN TRADE systems of planned economies and of the alternative methods of dealing with them which have been developed by private traders and governments of market economies. For purposes of such analysis, it may be useful to undertake a case study of trade relations between the Soviet Union, which is an extreme type of planned ecounomy, and the United States, whose foreign trade is, in general, less strictly controlled by governmental authorities than that of any major country in the world. Despite the special political and economic aspects of the case selected-and, in part, just because of those special aspects-such a study may shed light on the problems of developing an adequate framework for trade relations between planned economies and countries whose foreign and domestic trade is conducted primarily by private businessmen, operating largely on the basis of market conditions. Indeed, the example of Soviet- American trade illuminates the problems of state trading in general by bringing to> the foreground questions of political and economic philosophy which are present,. though not always so apparent, whenever any state conducts international trade. THE SovraT SYsTEM oF FoREIGi TRADE1 Three principal characteristics distinguish the Soviet system of foreign trade frod-t other trading systems.2 The first is that Soviet foreign trade is operated and admin- istered exclusively by state agencies. The second is that Soviet foreign trade is con- ducted on the basis of integrated national economic planning. The third is that Soviet foreign trade and Soviet national economic planning are under the direction of a government which is led by a Communist Party. Although these three character- istics are closely interrelated, each of them gives rise to a distinct set of problems. A. Problems Arising from the Operation and Administration of Soviet Foreign Trade Exclusively by State Agencies The operation and administration of Soviet foreign trade is designated by the Soviet 'Scholarly literature in English on the Soviet system of foreign trade is very skimpy. ALEXANDER BAYXOV, SOVIET FOREIGxN TRADE (1946), and MIKHAIL V. CONDOIOE, RUSSIAN-AMERICAN TRADE (1947) are sketchy and out of date. General books on the Soviet economy usually subordinate the treatment of the institutional aspects of Soviet foreign trade. However, HARRY SCHWARTZ, RussIA's SOVIET ECON- OMY c. 14 (ad ed. 1954), contains valuable information. Also MICHAEL L. HOFFMAN, PROBLEMS OF EAsr-Wrr TRADE (Carnegie Endowment for International Peace, International Conciliation No. 511, X957), and RAYMOND F. MIREsELL & J. N. BEHRmAN, FINANCING FREE WORLD TRADE WITH THE SINO- SOVIET BLOC (958), are useful, though brief. A valuable compendium of the legal aspects of Soviet foreign trade is a mimeographed German monograph, CARL-HANS Bi5TOW, DAS GEGENWXRTIGE INNER- STAATLICH GEREGELTE AusSENHANDELSRECIT DER UDSSR UNTER BERiUCxSICHTIGUNG DER ZWISCHEN- STAATLICHEN VERTRXGE (1956). ' The term Soviet system of foreign trade is used to refer to the system of the Soviet Union. Because. of the special kind of communist system established in Yugoslavia, and also because of certain differences- in the organization of foreign trade among the other communist countries, it is not possible to dis- tinguish merely between communist and noncommunist trading systems. To speak of "Eastern" and "Western" systems is even more misleading. The term "communist" poses certain difficulties, because of the doctrine that the Soviet Union is now in the stage of "socialism," and is only gradually moving toward the establishment of full "communism." To speak of the Soviet system as a socialist system, however, is confusing to those who identify socialism with the type of political and economic organiza- tion which exists, for example, in Sweden. The term "communist" is used throughout this article to refer to countries in which the government is led by a Communist Party. LAW AND CONTEMPORARY PROBLEMS Constitution, by Soviet decrees, and by Soviet writers as a "state monopoly. '3 In this respect, foreign trade does not differ from most of the other branches of the Soviet economy.4 However, the Soviet state cannot control the terms and conditions of foreign trade to the same extent that it can control the terms and conditions of its domestic economic activities. If it is successfully to maintain extensive economic connections with foreign countries, it must adapt its methods of trade to foreign requirements Of the many particular problems of adjustment which have arisen, a few may be singled out as particularly significant from the point of view of the development of ' Cf. U.S.S.R. CoNsT. art. 14: "The following shall be within the competence of the Union of Soviet Socialist Republics in the form of its highest organs of state authority and its organs of state admin- istration: . h) foreign trade on the basis of state monopoly." A 1922 decree states: "The foreign trade of the RSFSR shall be a state monopoly. The state foreign trade monopoly shall be realized by the People's Commissariat of Foreign Trade." SBORNIK UZAKONENI [COLLECTION or LAws] 10. 24, art. 266 (1922). The R.S.F.S.R. is the largest of the constituent republics of the Soviet Union; in 1922, the Soviet Union had not yet been constituted as such. The People's Commissariat of Foreign Trade of the Soviet Union was established in 1924. The People's Commissariats were renamed Ministries in 1946. The essence of the state monopoly of foreign trade, according to a resolution of the Plenum of the Central Committee of the Communist Party, of October 5, 1925, "consists in the fact that the state itself realizes the conduct of foreign trade through a specially created organ (the People's Commissariat of Foreign Trade)." The state "establishes what organizations, in what spheres and in what amounts, can carry on immediate operations in foreign trade; proceeding from the tasks of advancing the economy and socialist construction, it defines, by means of the export-import plan, what goods and in what quantities may be taken out of the country and what can be brought into it; by means of a system of licenses and contingents it immediately regulates import and export and the operations of the foreign trade organizations." s DIREKTIVY KPSS x SOVETSKOGO PRAVITEL's'rvO PO KOZIAsTvENNYM VOPRoSAM 1917-28 [DIRECTIVEs oF TE CPSU AND THE SOVIET GOVERNMENT ON ECONOMIC QusIoNs, 1917-28], at 555 (1958). "Thus the state monopoly of foreign trade," writes a recent author, after quoting the above statements, "should be defined as the concentration in the hands of the state, as represented by organs of state admin- istration specially authorized therefor, of the entire matter of the conduct of foreign trade." Pozdniakov, Prapovye Voprosy Gosudarstvennoi Monopolii Vneshnei Torgovli v SSSR [Legal Questions of the Stale Monopoly of Foreign Trade in the U.S.S.R.], in D.,M.